What if Apple's HDTV Is a Dud?

It was really just a matter of time.

A source is telling Apple (Nasdasq: AAPL) watcher CultofMac.com that a prototype exists. It essentially looks like a supersized version of the 27-inch LED-backlit Thunderbolt Display that is currently available as a monitor, complete with the iSight camera that will let owners use FaceTime to video chat from their living rooms.

Obviously the brain of this smart television will be much smarter. The source claims that Siri -- the digital assistant that was introduced with the iPhone 4S but didn't make its way to the new iPad -- will also be part of the new TV.

This all sounds great, but we all know how unnamed sources have a funny way of being wrong more often than they're right. And even if Apple has carved out a prototype, that obviously doesn't mean that the company will actually be putting it out.

However, the pressure on the company to put one out is mounting. The majority of Apple's revenue is being generated by the iPhone. The world's most valuable company needs to overcome flattish Mac sales and declining iPod sales. Even iPad sales -- which are still growing at a brisk pace -- fell short of the 13 million that analysts were targeting in the company's latest quarter.

An Apple HDTV would be nice. In time for the holiday shopping season would be ideal.

What if it's not what consumers want?

Learning from Google TV's mistakes
Google
(Nasdaq: GOOG  ) is in the process of giving Google TV another go. Korea's LG -- the world's second largest manufacturer of televisions -- is confirming that it will roll out smart TVs fueled by Google TV later this month.

We all know had badly the first generation flopped. Google had marquee partners attached to the launch, but the dot-com darling fumbled its end of the bargain. The interface was too limited and not intuitive enough, though that has been largely corrected through eventual software updates. The bigger problem -- and one that remains a sticking point -- is that Google has failed to play nice with the content creators.

Google TV wanted to do to televisions what Android did to smartphones, but the market dynamics have never been the same. Developers race to have their apps ported and made available on Android. Video creators, on the other hand, want tighter control of how their content is being consumed.

Will Apple be able to roll out a TV that plays broadcaster and network streams? Will Apple succeed in rolling out the ideal television service where folks only pay for the channels and content they watch?

It's not a matter of seeing how big Apple dreams. Unlike smartphones, where app developers want the same thing that consumers wants -- access -- there's a disconnection between what video consumers want and what video creators are offering.

Tinseltown can't afford to give viewers a choice of channels or free access to Web streams, because that would undercut the money that studios are presently making through costly cable and satellite television companies.

Your Apple HDTV may look great, but paying a premium for an appliance that doesn't excel at delivering the video streams that buyers want is going to flop.

Shortcomings beyond the thorny content issue
Apple is trying. It just may not like the answers that it will hear. CBS (NYSE: CBS  ) admitted late last year that Apple approached the media giant, but CBS passed on Apple's offer of a revenue-sharing arrangement in a streaming TV service.

However, even if Apple were able to magically get cable networks and production studios to sacrifice revenue in order to give consumers what they want, there are plenty of other reasons why the Apple HDTV will never come close to the iPhone or even the iPad.

  • LG's Google TV sets will start at a whopping $1,699. Apple will likely aim at a higher price point if it's matching LG on 47 inches, though it can -- and probably should -- go with smaller sets to achieve better prices. Either way, we're looking at four-figure prices at a time when consumers are still conscious of big-ticket purchases.
  • There is no subsidy play here. The reason iPhones sell so well at $199 is because Apple is selling them to AT&T (NYSE: T  ) for roughly $600. There is no one open to covering $400 on every TV sold. Sure, AT&T offers broadband television, but there's little to gain on Apple's end if it's down to selling costly content that shoppers can get without an Apple television.
  • AT&T laments that iPhone buyers upgrade too quickly. Consumers move on to the latest Apple models because it's cheap to do so once the two-year contract runs out. Mac buyers also don't mind upgrading after a couple of years. The prices, and the desire, won't be there to swap out your TV every two years.
  • Most Apple Stores are in suburban shopping malls. Carrying out a new phone, iPod touch, or iPad makes sense. Even the sale of the occasional Mac and MacBook won't test the strength of a shopper. How odd will it look to lug a delicate and heavy TV out of an Apple Store?   

It's great that a prototype is reportedly out there, but Apple has a lot of work to do and obstacles to clear if it wants to succeed. 

Thinking different
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Longtime Fool contributor Rick Munarriz calls them as he sees them. He does not own shares in any of the stocks in this story. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.

The Motley Fool owns shares of Google. The Fool owns shares of Apple. Motley Fool newsletter services have recommended buying shares of Apple and Google. Motley Fool newsletter services have recommended creating a bull call spread position in Apple. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


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